A severance agreement also helps the employer to guarantee that their employee will not cause any harm to the business after being terminated. Taxation of severance and retrenchment benefits. Remuneration is calculated including basic salary and payments in kind. An arbitrator dealing with this dispute may only decide whether the employee is entitled to the severance pay, which is a statutory entitlement. The employer’s personnel manual or policies may or may not have a written policy on severance. How severance pay is calculated. Often, termination can be unexpected for the employee. The employer sets the policy regarding employees receiving a week's salary for each year they were employed, or if another calculation will be used. Severance pay – this should be at least one week’s remuneration per completed year of service. Severance pay helps employees to stay on their feet financially while they look for a new job. These are: A severance package, which is usually an amount stipulated in an employee’s contract. The enforceability of the voluntary retrenchment agreement. JUDGMENT. Severance pay must equal at least one week’s pay for every year of continuous service. Severance pay – a retrenched employee must at least be paid 1 week’s pay for each completed year of ongoing service. Since the pandemic began, most companies have kept existing severance policies in place, opting instead to institute pay cuts and salary freezes and make changes to bonus plans and short- and long-term incentives to save money. Payment of severance pay does not affect the rights of a worker to any other payable amount. (‘Remuneration’ includes basic salary, payment in kind and discretionary payments related to working hours or performance). Severance Benefit – a lump sum payment from a person’s employer received on termination of employment on: a) Such person reaching the age of … SAIT (South African Institute of Tax Professionals) They don't agree that a voluntary retrenchment package isn't a ‘severance benefit’. Where such mobile employees are retrenched, the payment of a termination package to the retrenched employee may trigger tax obligations for the employee and employer company in more than one country. The obligation to pay severance pay to fixed-term employees By Johan Botes, Director, Employment Law, Cliffe Dekker Hofmeyr. The retrenchment policy in South Africa clearly states that the retrenched employees are entitled to certain compensation packages. Outstanding leave must be paid out in full. Source: §41 of the Basic Conditions of Employment Act 1997 (last amended in 2018) Non-Standard Workers' Rights on Severance Pay - Platform workers. See more information on Severance Agreements. Severance pay applies only in the case of retrenchment. In unionised companies where the amount of retrenchment benefit is stated in the collective agreement, the norm is 1 month’s salary for each year of service. Severance pay is not required by the Fair Labor Standards Act (FLSA); how and whether an employer chooses to grant severance pay is at its discretion. Severance may be paid as a lump sum or in installments. Severance benefits. JUDGMENT. The question of whether an employee is entitled to severance pay usually arises once a retrenchment has been concluded and there is a dispute referred to the CCMA or a Bargaining Council. Accordingly, provided that all the provisions of section 10(1)(x) of the ITA are complied with, the first R30 000 of the severance package would be tax free. Severance pay is subject to the deduction of tax. Under certain circumstances, SARS allows part of the final payment to an employee on termination to be tax exempt, or taxed at a lower rate. 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